In addition to downgrading Morgan Stanley to a "hold" rating, O'Connor lowered his price target for the shares to $30 from $31.00, for the same reason he cut his price target for Citi, which was to reflect the discounted P/E for market sensitive banks.
According to O'Connor, Morgan Stanley has already "delivered on a number of key strategic initiatives around the equities business, wealth mgmt, ibanking, expenses and capital," although trading revenue has been "disappointing."
"However, we believe much of the improvement in execution is being currently being priced into the stock and additional upside in the near term will be more macro driven," O'Connor wrote.
Looking beyond the short-term worries over Fed policy, Morgan Stanley's leading market share for global equity underwriting, as well as its increased wealth management revenue and strong level of capital, "suggest upside longer term if positive macro trends continue and
MS continues to improve its execution," the analyst added.
Shares of Citigroup were down nearly 1% in the first few minutes of trading to $51.55, while Morgan Stanley was down 1.2% to $30.75.
The following chart shows the year-to-date stock performance for Citigroup and Morgan Stanley, as well as the KBW Bank Index and the S&P 500:
data by YCharts
-- Written by Philip van Doorn in Jupiter, Fla.
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